Legislature(2003 - 2004)
04/29/2003 01:46 PM House FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HOUSE BILL NO. 216 "An Act relating to municipal taxation of refined fuel products." REPRESENTATIVE TOM ANDERSON, SPONSOR, provided information about the bill. He read from the sponsor statement as follows: House Bill 216 clarifies local taxing authority for refined fuels sold both within and outside of a local jurisdiction. CS HB 216(CRA) clarifies that local governments have the right to tax any fuel consumed within their governmental boundaries, but do not have taxing authority on fuel used in turbine-powered aircraft (except fuel that his transferred into an aircraft at a municipal or private airport) or wholesale sales or transfers of any refined petroleum product. This type of taxation would also result in residents from other parts of the State paying local governments costs in municipalities where they do not reside. The clarification contained in HB 216 will also benefit local governments. There is some uncertainty now in state law about the authority to tax fuel, and HB 216 will clarify the authority to tax locally consumed fuels. Finally, one addition has been made to this bill. Section 4 contains language designed to increase the maximum amount of loans from the bulk fuel revolving loan fund from the current $200,000 to $300,000. This change is necessary due to the rise in fuel prices nationwide, especially in rural Alaska. And here in the audience and online are members of industry including Jeff Cook of Williams Alaska Petroleum who can give some perspective on the history of this idea and the need for this legislation. Co-Chair Harris clarified that the Committee was discussing the Community and Regional Affairs version of the bill. JUSTIN CHARON, YUKON FUEL, testified via teleconference in support of the bill. He stated that his company would like to increase the [AEA administered] Bulk Fuel Revolving Loan Fund from $200 to $300 thousand as a result of increases experienced in the fuel markets over the past several months. He noted that volatility in the market eroded buying power of western Alaskan consumers. He pointed out that infrastructure was available in new villages through the Denali Commission, which was allowing them to buy enough fuel for the winter without flying it in. He explained that flying fuel could cost as much as 100 percent more than fuel from barges, but stressed that consumers sometimes could not afford to purchase barged fuel, and had no choice but to pay the higher prices of flown fuel. He recommended that the loan program could alleviate this problem. TIM BECK, FAIRBANKS, testified via teleconference in opposition to the bill. He maintained that this was a special interest tax, and stated that it was a result of a similar initiative in the North Star Borough pertaining to a fuel transfer tax on certain refined fuel products. He claimed that a fuel transfer tax he had sponsored had been removed from the agenda due to its similarity to the initiative, thereby curtailing public discussion on the tax. He referred to a February 3, 03 letter from Jeff Cook at William Alaska validating the alleged misinformation put forth by the initiative sponsors. He noted that a resolution was to have been forwarded to the Alaska Municipal League for discussion. He maintained that the legislation constituted an "end run" around the process that includes the states, boroughs, cities and municipalities and directly removes a local revenue generator from already limited taxing authorities. He read from the 2003 municipalities' handbook, under Revenue and Finance, and emphasized that the League would oppose limitations to taxing authority. He noted that several communities already had fuel transfer taxes on the books. He asked for an opportunity for the Alaska Municipal League to address this issue at their fall meeting as originally intended. MERRICK PIERCE, FAIRBANKS testified via teleconference in opposition to the bill. He maintained that the legislation supported special interest groups and subordinated community interests. He suggested that the Williams Company had approached the North Pole City Council to pass a resolution asking the legislature to change state law and exempt Williams Alaska from taxation of jet fuel. This resolution was rejected by the Council, who then sent the resolution to the AML for study. He claimed that the Corporation had then approached the legislature directly, which resulted in HB 216. He offered an example of how wealthy corporations "played by different rules" and manipulate the legislative system: when the borough tax assessors in Fairbanks asses property value they are required to assess fair market value, resulting in property tax rates, but they are not allowed to assess the pipeline system lands since local officials had that authority taken from them, resulting in a dramatic drop in the pipeline property valuation. He maintained that other residents of the borough pay more in property taxes due to that under valuation. He stressed that a rule in business was not to give away something valuable for free, and questioned the return for Alaskans on this legislation. He maintained that nothing was gained, but diversification of the local tax base, needed in the community to offset the high cost of living, was lost. He noted that the rate of delinquency of property taxes in the borough had exceeded 10 percent, indicating the heavy tax burden. He stated that the Fairbanks North Star Borough Assembly had not given its position on the legislation, and the North Pole City Council had voted against the resolution, but asked the AML to consider the issue. Co-Chair Harris asked if the Alaska Municipal League or the communities of Anchorage and Fairbanks had provided information. Representative Anderson responded that the Executive Director of the Alaska Municipal League had initially expressed concern about whether language in the bill prevented taxes on other refined fuel and petroleum products, which he stated might generate a future amendment. He added that the Municipal League was supportive of the amended legislation. In response to a question by Co-Chair Harris, he noted that Tim Rogers from the City of Anchorage presented the same initial concerns, which were also allayed by the amendment. He stated that the city of Fairbanks had not been present at that meeting, but stated that the Fairbanks Chamber of Commerce endorsed the legislation. Mr. Pierce stressed, via teleconference, that the issue was never brought before the Fairbanks Assembly. PAUL BARRETT, FAIRBANKS testified via teleconference in opposition to the legislation. He concurred that the bill represented special interests, and maintained that while Fairbanks should be enjoying the lowest fuel prices in the country, in fact the pricing was among the highest, since the Alaska market was smaller and instate refineries experience extreme economic advantage. He submitted that the purpose of the legislation was to preserve an economic advantage by maintaining a price advantage. He suggested that the legislature should not act according to business needs. He noted that Williams Alaska was concerned with facilitating a sale of their refinery. TAPE HFC 03 - 70, Side A Mr. Barret continued his testimony. He maintained that the Supreme Court had upheld tax plans innovated by municipalities. He suggested that before the legislature acted preemptively in this area that they await the AML analysis scheduled for the fall. He concluded that should the legislature choose to act preemptively, the state impose a statewide excise tax on instate refiners. He maintained that as long as the tax was restricted to instate refiners, the cost would not be passed on to Alaskans, and that this would mitigate the extreme prices currently paid by Alaskans for petroleum products. JEFF COOK WILLIAMS, VICE PRESIDENT, WILLIAMS ALASKA PETROLIUM testified in support of the bill. He stated that Williams operates Alaska's largest refinery, located at North Pole near Fairbanks. They also own product terminals in Fairbanks and Anchorage, 29 convenience stores located in seven Alaskan communities, and a three percent interest in the Trans Alaskan Pipeline, which he pointed out that they did not acquire until after the TAPS settlement agreement. He noted that since the refinery began 25 years ago, the company has purchased 300 million barrels of crude oil from the state of Alaska, in addition to oil purchased from producers. Mr. Cook stated that in June 25, 2002 a special election was held in the Fairbanks/North Star Borough to determine whether a two-cent per gallon transfer tax should be enacted. He stated that after much public debate the voters denied the tax by 62 to 32 percent. He maintained that the issue was that the tax would have cost Williams and Petrostar in excess of $20 million per year. Williams would not have passed the tax on to customers since they had alternative sources of supply. He noted that they refine 70 thousand barrels per day of product, 60 percent is jet fuel, of which over 90 percent is shipped by railcar to Anchorage. He noted that in addition they supply fuels to rural Alaska by barge and other means to support airports and diesel fuel needs. He emphasized that the air cargo industry is a competitive market, and that even a penny per gallon made a big difference. They also export to Japan from Anchorage. Mr. Cook explained that by the time the product leaves the refinery, it goes through eight potential taxing jurisdictions. If the transfer tax was added, they product could be priced out of competition. He maintained that their product was a value added service for interior Alaska. He also pointed out that the promoters of the tax were asking producers to pay for the municipal government and suggested that this was unfair. He noted that prior to the election, the North Start Borough hired former Attorney General Avrum Gross to analyze the effects of such a tax. He stated that Mr. Gross had determined [letter dated May 29, 2002, COPY ON FILE] that the tax would be a source of confusion and an unreliable means of revenue for the Assembly. Mr. Williams concluded that within the boundaries of a municipality, any excise taxes were fair, but to tax exported products to pay for local government was inappropriate. Representative Foster commented that in 1993 a village in his district began taxing all the by-pass coming through their airport. He concluded that if each municipality added excise taxes, the eventual cost of products being transported to the villages would be prohibitive. He stressed his support for the legislation. Mr. Williams added that some members had expressed concern for small plants in the North Slope that transfer diesel to run machinery and wanted to make sure that this would not be taxable. He stated that their company understood the concern, and it would be addressed in the bill at a later time. Co-Chair Harris clarified that Co-Chair Williams did not intend to move the bill at this time, indicating that a new Committee Substitute was forthcoming. CSHB 216 (CRA) was heard AND HELD in Committee for further consideration.